FutureFuel Corp.: Form 10-Q for the period ended Mar 31, 2026

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of FutureFuel Corp. (“FutureFuel”, “the Company”, “we”, or “our”) should be read together with our consolidated financial statements, including the notes thereto, set forth herein and in our 2025 Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Information” below for additional discussion regarding risks associated with forward-looking statements.

In the first quarter of 2026, the Company elected to change its method of accounting for certain inventories in the U.S. from last in, first out ("LIFO") to weighted average cost. The Company believes the change to weighted average cost is preferable because it provides a better matching of costs and revenues, conforms the Company's inventory to a single method of accounting and improves comparability with the Company's peers. The Company retrospectively applied this change in accounting principle to all prior periods contained herein.

Unless otherwise stated, all dollar amounts are in thousands.

The designation “NA” (Not Applicable) in the tables below appears when a percentage change is calculated between a negative and a positive number (or positive and negative), rendering the result meaningless.

Overview

Our Company is managed and reported in two reportable segments: chemicals and biofuels. Within the chemical segment are two product groupings: custom chemicals and performance chemicals. The custom product group is composed of specialty chemicals manufactured for a single customer whereas the performance product group is composed of chemicals manufactured for multiple customers. The biofuel segment is composed of one product group. Management believes that the diversity of each segment strengthens the Company in its ability to utilize resources and is committed to growing each segment.

The biodiesel segment was supported by the United States Environmental Protection Agency (“EPA”) Renewable Fuel Standard (“RFS”). We generate 1.5 Renewable Identification Numbers (“RINs”) for each gallon of biodiesel sold in the United States with a classification of a D4 or D6 RIN. RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS within the EPA moderated transaction system. We do not assign cost of goods sold to the generation of RINs as the physical fuel generates the full cost. As of March 31, 2026, we held 0.2 million D4 RINs with a fair market value of $298. Comparatively, as of March 31, 2025, we held 2.3 million D4 RINs with a fair market value of $2,077.

On March 27, 2026, the EPA finalized the “Set 2” RFS volumes establishing the highest blending mandates in the program’s history targeting a 60% increase over 2025. The EPA estimates the mandate will require roughly 5.3 to 5.4 billion physical gallons of biomass diesel in 2026 and 5.7 to 5.8 billion gallons in 2027. The rule reduced the RIN equivalency factor for renewable diesel from 1.7 to 1.6 (from a revenue advantage on every gallon sold of 13% to 6%) and further to 1.5 (the same as biodiesel) by 2027 which represents a fundamental shift in the competitive and structural landscape of biodiesel. To meet the 2027 volume targets, utilization of domestic capacity is expected to be 100%. The EPA delayed the implementation of the half RIN penalty for imported fuels and feedstocks until January 1, 2028.

On February 4, 2026, the Treasury Department and the Internal Revenue Service issued proposed regulations providing expanded guidance on the clean fuel production credit (“CFPC”) integrating changes from the Budget Reconciliation Act of 2025, which made modifications to the CFPC. The proposed rule is expected to help level the competitive environment for biodiesel by: (i) reducing the tax credit for sustainable aviation fuel from $1.75 per gallon to $1.00 per gallon effective January 1, 2026, and (ii) requiring that all feedstock be sourced from North America, as required for biomass-based diesel.

Summary of Financial Results

Set forth below is a summary of certain consolidated financial information for the periods indicated.

We use adjusted EBITDA as a key operating metric to measure both performance and liquidity. Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities (each as determined in accordance with GAAP) as a measure of performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP. We define adjusted EBITDA as net (loss) income before interest, income taxes, depreciation, and amortization expenses, excluding, when applicable, non-cash stock-based compensation expenses, public offering expenses, acquisition-related transaction costs, purchase accounting adjustments, losses on disposal of property and equipment, non-cash gains or losses on derivative instruments, and other non-operating income or expenses. Information relating to adjusted EBITDA is provided so that investors have the same data that we employ in assessing the overall operation and liquidity of our business. Our calculation of adjusted EBITDA may be different from similarly titled measures used by other companies; therefore, the results of our calculation are not necessarily comparable to the results of other companies.

Adjusted EBITDA allows our chief operating decision maker to assess the performance and liquidity of our business on a consolidated basis to assess the ability of our operating segments to produce operating cash flow to fund working capital needs, to fund capital expenditures, and to pay dividends. In particular, our management believes that adjusted EBITDA permits a comparative assessment of our operating performance and liquidity, relative to performance and liquidity based on GAAP results. This measure isolates the effects of certain items, including depreciation and amortization (which may vary among our operating segments without any correlation to their underlying operating performance), non-cash stock-based compensation expense (which is a non-cash expense that varies widely among similar companies), and non-cash gains and losses on derivative instruments (which can cause net income to appear volatile from period to period relative to the sale of the underlying physical product).

We utilize commodity derivative instruments primarily to attempt to mitigate the effect of commodity price volatility and to provide greater certainty of cash flows associated with sales of our commodities. We utilize mark-to-market accounting to account for these instruments. Thus, our results in any given period can be impacted, sometimes significantly, by changes in market prices relative to our contract price along with the timing of the valuation change in the derivative instruments relative to the sale of biofuel. We include the mark-to-market or non-cash portion of this item as an adjustment to adjusted EBITDA as we believe it provides a relevant indicator of the underlying performance of our business in a given period.

The following table reconciles net (loss) income, the most directly comparable GAAP performance financial measure, with adjusted EBITDA.

The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.

22

Results of Operations

Consolidated

Consolidated revenue in the three months ended March 31, 2026, increased 82% or $14,414 compared to the three months ended March 31, 2025, driven by two factors

• The change in volume and product mix of $10,800 was largely due to growth in the chemical segment's energy market products, specifically supported by a new plant within our facility that became operational in the fourth quarter of 2025 and additional regulatory clarity, supporting an additional contribution from the biofuels segment. The biofuel segment added $4,147 following regulatory clarity.
• Both segments saw improved price variance totaling $3,614, primarily due to the energy market's performance: Chemicals (+$1,007) and Biofuels (+$2,607).

Gross loss in the three months ended March 31, 2026, increased $670 as compared to the same period of 2025. This variance was primarily driven by two factors:

• Derivative activity within the biofuel segment. Total gains and losses on derivative instruments and changes in fair value of the derivative instruments were a net loss of $11,629 (including settlements of $9,141) for the three months ended March 31, 2026, and a net loss of $166 (including settlements of $93) for the three months ended March 31, 2025. While the $9,141 in derivative settlements contributed significantly to the gross loss this quarter, these settlement costs are expected to be offset upon the sale of the underlying physical product. This timing difference often creates a temporary disconnect between realized derivative losses and the eventual revenue recognition of the physical inventory.
• Mostly offsetting these gross losses was the improvement in margins in product sold into the chemical energy market and in biodiesel with clarity obtained from the Treasury Department and the EPA on previously mentioned renewable energy regulations.

Operating expenses

Operating expenses increased $710 in the three months ended March 31, 2026, as compared to the three months ended March 31, 2025. The net increase was primarily from winter storm Fern freeze repair expenses of $1,357, partially offset by reduced compensation and research and development expenses.

Other income, net

Other income, net decreased $932 in the three months ended March 31, 2026, as compared to the same period of 2025 primarily from the reduction of interest income. In the current three-month period interest income was $298 as compared to $1,237 in the prior period.

Income tax provision

The Company’s income tax provision for the three months ended March 31, 2026, is comprised of immaterial state taxes and miscellaneous items. The income tax benefit for the three months ended March 31, 2025, was comprised of immaterial state taxes and miscellaneous items.

Chemical Segment

Chemical revenue in the three months ended March 31, 2026, increased 110% or $10,267 compared to the three months ended March 31, 2025. Revenue from custom chemicals for the three months ended March 31, 2026 totaled $13,872, a net increase of $5,463 from the same period in 2025, primarily resulting from higher sales volumes of products sold in the energy market of $4,405. Performance chemicals revenue was $5,760, an increase of $4,804 from the three months ended March 31, 2025 from sales of a new energy market product brought online in the fourth quarter of 2025.

Gross loss for the chemical segment was $2,519 for the three months ended March 31, 2026, an improvement of $3,496 compared to the same period of 2025. The improvement was primarily driven by new product revenue sold into the energy market as noted above.

Biofuel Segment

Biofuels revenue in the three months ended March 31, 2026, increased by $4,147 compared to the prior-year period. The upward trend was primarily attributed to enhanced clarity surrounding the CFPC and record-high final renewable volume obligation (“RVO”) levels. However, these gains were partially offset by lower sales volumes, which were adversely impacted by severe winter weather and geopolitical instability in the fuel markets due to the war with Iran.

A significant portion of our biodiesel sold was to one major customer in the three months ended March 31, 2026, as compared to no major customers in the three months ended March 31, 2025. No assurances can be given that we will continue to sell to such major refiner, or, if we do sell, the volume we will sell or the profit margin we will realize. We do not believe that the loss of these customers would have a material adverse effect on our biofuels segment or on us as a whole because: (i) we believe that we could readily sell our biodiesel to other customers on equivalent terms as potential demand from other customers for biodiesel exceeds our production capacity; (ii) our sales to these customers are not under fixed terms and the customers have no fixed obligation to purchase any minimum quantities except as stipulated by short-term purchase orders; and (iii) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.

Biofuel gross loss was $13,339 in the three months ended March 31, 2026, representing an increase of $4,166 compared to the same period in 2025. This increased loss was primarily driven by unfavorable shifts in derivative instruments activity. During the quarter, we recognized a realized loss of $9,141 and an unrealized loss of $2,488, compared to a realized gain of $93 and an unrealized loss of $259 in the prior-year period. While the $9,141 in derivative settlements significantly impacted the current quarter’s gross loss, these costs are generally intended to be recovered once the underlying physical product is sold. This timing difference often creates a temporary disconnect between realized derivative losses and the eventual revenue recognition of the physical inventory.

For our derivative activity, we recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. The realized and unrealized derivative gains and losses are recorded as cost of goods sold. Our derivative instruments do not qualify for hedge accounting under the specific guidelines of ASC Topic 815, Derivatives and Hedging (“ASC 815”). None of the derivative instruments are designated and accounted for as hedges.

The volumes and carrying values of our derivative instruments included in other current assets were as follows:

All derivative instruments are entered into with the standard contract terms and conditions in accordance with major trading authorities of the New York Mercantile Exchange.

Critical Accounting Estimates

Revenue Recognition

The Company recognizes revenue under ASC Topic 606, Revenue from Contracts with Customers. Certain long-term contracts had upfront non-cancellable payments considered material rights. The Company applied the renewal option approach in allocating the transaction price to the material rights. For each of these contracts, the Company estimated the expected contractual volumes to be sold at the most likely expected sales price as a basis for allocating the transaction price to the material right. Estimated amortization is updated quarterly on a prospective basis. These custom chemical contracts have payment terms of 30 days. See Note 3 to our consolidated financial statements for additional information.

For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms. Nearly all custom manufactured products are manufactured under written master service agreements. Performance chemicals and biodiesel are generally sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. All of our products are tested for quality before shipment, and historically returns have been inconsequential and we typically do not offer rebates.

Biodiesel selling prices can at times fluctuate based on the timing of unsold, internally generated RINs. From time to time, sales of biodiesel are on a “RINs-free” basis. Such method of selling results in applicable RINs being held. The value of the RINs is not reflected in revenue until such time as the RIN sale has been completed.

Revenue from bill-and-hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and control of the product has transferred. Bill-and-hold transactions for the three months ended March 31, 2026 and 2025 were related to custom chemicals customers whereby revenue was recognized in accordance with contractual agreements based upon product being produced and ready for use by the customer. These sales were subject to written monthly purchase orders. The product was custom manufactured and stored at the customer’s request and could not be sold to another buyer. Credit and payment terms for bill-and-hold customers are similar to other custom chemicals customers. Revenues under bill-and-hold arrangements were $10,378 for the three months ended March 31, 2026. As of March 31, 2026 and December 31, 2025, $5,486 and $5,106 of bill-and-hold revenue had not shipped, respectively.

Liquidity and Capital Resources

Our net cash from operating activities, investing activities, and financing activities for the three months ended March 31, 2026 and 2025 is set forth in the following table.

We believe that existing cash balances and cash flow to be generated from operating activities and borrowing capacity under the amended and restated credit agreement will be sufficient to fund operations, product development, cash dividends, and capital requirements for the foreseeable future.

Operating Activities

Cash used in operating activities was $19,996 in the three months ended March 31, 2026, as compared to $5,395 in the same period of 2025. This increase in cash used was primarily attributable to the change in accounts receivable, including accounts receivable - related parties resulting in a cash outflow of $17,891. Also contributing to the current period's increase in cash used was the change in accrued expenses and other current liabilities of $2,842. Partially offsetting these cash outflows was the change in accounts payable, including accounts payable - related parties, resulting in a cash inflow of $4,432, and the change in inventory of $3,359.

Investing Activities

Cash used in investing activities was $6,321 in the three months ended March 31, 2026, as compared to $4,082 in the three months ended March 31, 2025. This $2,239 increase in cash used was primarily due to an increase in capital expenditure of $1,384.

Financing Activities

Cash used in financing activities was $2,632 and $2,993 in the three months ended March 31, 2026 and 2025, respectively, primarily for payments of dividends on our common stock.

Credit Facility

We have a credit agreement, as amended and restated on February 21, 2025, and further amended effective as of June 20, 2025, and December 22, 2025, with a syndicated group of commercial banks for $35,000. The loan is a revolving facility, the proceeds of which may be used for our working capital, capital expenditures, and general corporate purposes. The facility terminates on February 21, 2030. See Note 8 to our consolidated financial statements for additional information regarding our credit agreement.

We intend to fund future capital requirements for our businesses from cash flow as well as from existing cash, cash investments, and, if the need should arise, borrowings under our credit facility. We do not believe there will be a need to issue any securities to fund such capital requirements.

Dividends

Regular cash dividends of $0.06 per share were paid on our common stock in each quarter of 2025. The declaration of these regular quarterly cash dividends was made in the three months ended December 31, 2024. During the three months ended December 31, 2025, a declaration for cash dividends of $0.06 per share was made for the first quarter of 2026. The cash dividend in the three months ended March 31, 2026 and 2025, amounted to $2,628 and $2,632, respectively. During the three months ended March 31, 2026, a cash dividend of $0.01 per share was declared for the second quarter of 2026.

Capital Management

As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital. Some of this excess working capital has been paid out as special and regular cash dividends. Third parties have not placed significant restrictions on our working capital management decisions.

A significant portion of these funds were held in cash or cash equivalents at multiple financial institutions such as depositary accounts, money market accounts, and other similar accounts at selected financial institutions.

Off- Balance Sheet Arrangements

We engage in two types of transactions to mitigate the impacts of changes in prices for both commodity sales and purchases. First, for our biofuel sales, we enter into the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured in our consolidated balance sheets at March 31, 2026, and December 31, 2025 as derivative instruments recorded in accordance with ASC 815. Second, for our biofuel feedstocks, we execute purchase contracts and supply agreements with certain vendors that meet the normal purchase and normal sales exception of ASC 815. These transactions are recognized in earnings and were not recorded in our consolidated balance sheets at March 31, 2026, or December 31, 2025 to the extent that we are able to apply the normal purchase and normal sales exception of ASC 815. The purchase of biofuels feedstock generally involves two risk components: basis and price. Basis covers any refining or processing required as well as transportation. Price covers the purchases of the actual agricultural commodity. Both basis and price fluctuate over time. A supply agreement with a vendor constitutes a hedge when we have committed to a certain volume of feedstock in a future period and have fixed the basis for that volume.

All dollar amounts expressed as numbers in these Market Risk Disclosures are in thousands

(except per share amounts).

In recent years, general economic inflation has not had a material adverse impact on our profit, as we have passed some price increases along to our customers. However, we are subject to certain market risks as described below.

Market risk represents the potential loss arising from adverse changes in market rates and prices. Commodity price risk is inherent in the chemicals and biofuels business both with respect to inputs (electricity, coal, raw materials, biofuel feedstock, etc.) and outputs (manufactured chemicals and biofuels).

We seek to mitigate our market risks associated with the manufacturing and sale of chemicals by entering into long-term sales contracts that include contractual market price adjustment protections to allow changes in market prices of key raw materials to be passed on to the customer. Such price protections are not always obtained, however, and some raw material price risk remains significant.

In order to manage price risk caused by market fluctuations in biofuel prices, we may enter into exchange-traded commodity futures and options contracts. We account for these derivative instruments in accordance with ASC 815. Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship. To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained. We had no derivative instruments that qualified under these rules as designated accounting hedges in the first three months of 2026 or 2025. Changes in the fair value of our derivative instruments are recognized at the end of each accounting period and recorded in the consolidated statement of operations as a component of the cost of goods sold within the biodiesel segment.

Our immediate recognition of derivative instrument gains and losses can cause net income to be volatile from period to period due to the timing of the change in value of the derivative instruments relative to the volume of biofuel being sold. At March 31, 2026 and December 31, 2025, the fair value of our derivative instruments was a net liability of $2,501 and $13, respectively.

Our gross profit will be impacted by the prices we pay for raw materials and conversion costs (costs incurred in the production of chemicals and biofuels) for which we do not possess contractual market price adjustment protection. These items are principally composed of yellow grease, used cooking oil, and cottonseed oil. The availability and price of these items are subject to fluctuations due to unpredictable factors such as weather conditions, overall economic conditions, governmental policies, commodity markets, and global supply and demand.

We prepared a sensitivity analysis of our exposure to market risk with respect to key raw materials and conversion costs for which we do not possess contractual market price adjustment protections, based on average prices for the first three months of 2026. We included only those raw materials and conversion costs for which a hypothetical adverse change in price would result in a 1% or greater decrease in gross profit. Assuming that the prices of the associated finished goods could not be increased and assuming no change in quantities sold, a hypothetical adverse 10% change in the average price of the commodity listed below would result in the following change in gross profit.

(a) Volume requirements and average price information are based upon volumes used and prices obtained for the three months ended March 31, 2026. Volume requirements may differ materially from these quantities in future periods as our business evolves.

We had no borrowings at March 31, 2026, or December 31, 2025, and as such, we were not exposed to interest rate risk for those periods. Due to the relative insignificance of transactions denominated in foreign currency, we consider our foreign currency risk to be immaterial.

Management’s Evaluation of our Disclosure Controls and Procedures

Under the supervision and with the participation of our chief executive officer and our principal financial officer and other senior management personnel, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our principal financial officer have concluded that these disclosure controls and procedures, at March 31, 2026, were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported accurately and within the time periods specified in the SEC's rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to risk factors; however, due to the uncertainty of the current economic environment, we encourage reference to the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.